November 16, 2012

Everything You Want to Know About the Foreign Corrupt Practices Act and More

By Jason Enzler

In a move that should help both businesses and those seeking to combat fraud, the SEC and DOJ jointly released a 120-page guide on the Foreign Corrupt Practices Act (FCPA) on Wednesday.  The guide does not represent any changes to the law or new trends in its enforcement, but it does gather in one place an easy-to-read discussion of the law and its prohibitions, answers to hypothetical scenarios, descriptions of past cases where the agencies have – and have not – decided to level charges, and factors the agencies consider in pursing cases.

The agencies’ release of this guide could not have come sooner.  Enforcement of the 35 year old law, which prohibits bribery of foreign officials and requires businesses with securities listed in the U.S. to follow the SEC’s accounting rules, has increased dramatically in the past five years.  See SEC Continues Its Crusade Against Foreign Bribery.  In fact, the top ten FCPA enforcement actions in the past three years have netted over $3 billion in fines.  This increased application of the law spurred businesses to call for the guidance.  Many saw ambiguities in the law’s application that created uncertainty, leading to loss of business opportunities in countries with endemic corruption and requiring businesses to spend millions of dollars on compliance programs without knowing whether those programs would be sufficient.  As many commentators in the news have stated, this guidance will primarily help small and mid-sized companies and their employees who do not have extensive counsel or the means to implement robust compliance programs.  But very little has been said about how this guidance will affect whistleblowers or the government’s ability to enforce the FCPA.  

In July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Among its sweeping changes was the establishment of a SEC whistleblower program that awards a person reporting fraud with up to 30% of the government’s recovery for violations of the securities laws, the obvious intent to significantly increase the number of such whistleblowers.  The FCPA, which is part of the securities laws, is often misunderstood as applying narrowly only to bribes paid outside of the country.  The recent guidance makes clear that the FCPA prescribes and proscribes so much more.  And with the increased number of people incentivized to blow the whistle on corporate fraud, the guidance should act as an invaluable tool for employees outside of the legal and compliance worlds to more readily recognize FCPA violations and come forward.

One other wrinkle bears mentioning.  The FCPA is enforced by both the DOJ and the SEC.  If a whistleblower reports suspected fraud to the DOJ, they might not receive the 30% share of the recovery or the retaliation protections established by Dodd-Frank.  Those incentives and protections are for whistleblowers who submit information to the SEC under that agency’s whistleblower guidelines.

SEC and DOJ press releases announcing the joint guidance are available here and here.  FCPA enforcement actions by the SEC and DOJ are available here and here.

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